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Does Your Real Estate Contract The Coronavirus Outbreak?

Parties under contract to buy or sell their homes are concerned about their contract’s viability and their legal rights under that contract.

In law, there is a doctrine called “force majeure” that excuses or permits a party to delay its performance under an otherwise legally enforceable contract when certain events occur. Force majeure means “greater force.” A force majeure event is derived from the French Napoleonic Code. Force majeure events are often defined in contracts to include political events such as wars, insurrections, riots, strikes, lockouts, terrorist threats or actions, or explosions.

A force majeure event is often referred to as an act of God or act of nature, such as hurricanes, floods, earthquakes, landslides, tornadoes, tsunamis, volcanic eruptions, sinkholes and storms.

Generally, losing one’s job, asset diminution, financial reverses or general uncertainty about the future are not force majeure events, though they may be relevant factors that lenders will consider when approving or denying a buyer’s loan application.

Courts look to the specific force majeure clause language in a contract to determine whether a certain event is covered. Absent a force majeure clause, the courts will generally enforce the contract terms as written.

When God appears in contracts, that’s ‘force majeure’

The current Greater Capital Area Association of Realtors sales contract does not contain a force majeure clause. The association has recently issued a coronavirus addendum. The addendum allows a buyer and seller to agree in advance to extend deadlines if certain events occur. Those coronavirus-related events are called permitted delays.

Permitted delays include the buyer or seller being exposed to or infected with the coronavirus or diagnosed with covid-19, the buyer or seller being quarantined or not permitted to travel, the buyer’s settlement attorney or lender being unable to complete the transaction, and other similar causes related to the coronavirus outbreak that are beyond a buyer’s or seller’s reasonable control.

Events that may be beyond a buyer’s or seller’s reasonable control may be scheduling home, pest, radon or other contractually required inspections. Sellers may be understandably reluctant to allow home access for showings and/or walk-throughs immediately before settlement. If they do allow access, many sellers are requiring visitors to wear gloves, masks, shoe coverings and perhaps even submitting to have their temperature taken.

Home inspectors are reluctant to make their inspections. Lenders report that they are having difficulty getting appraisals done in a timely manner and in verifying buyers’ employment immediately before settlement since so many employers’ businesses are closed. Open houses have become risky and, where legal, severely limited, but virtual open houses may still be held via the Internet and may become the wave of the future.

All stakeholders in the residential real estate industry are collaborating to continue to allow settlements to proceed while complying with the public necessity to stay home. Emergency declarations and stay-at-home orders issued by governors and mayors around the country have defined lenders and settlement attorneys as “essential businesses” so that parties ready to go to settlement may do so.

These governmental acts have also, in many states, authorized electronic signatures and remote online notarization to be used so that settlements can occur without having to engage in face-to-face settlements. Emergency orders have authorized and directed county recording officials to accept electronic signatures via electronic recordings.

Lenders are expediting approvals for using digital promissory notes and permitting settlement attorneys to conduct online settlements and remote online notarizations. Settlement companies are rushing to implement the available technology for virtual settlements. But these coordinated steps will take time to fully integrate. In the meantime, curbside settlements, settlements held in strictly controlled and disinfected rooms, and other improvised measures will be the norm to permit buyers and sellers to complete what is typically the most important transaction of their lives.